Singapore information technology report q1 2012

BMI expects the total size of the domestic IT market to increase from US$6.4bn in 2012 to US$9.6bn in 2016, with drivers including a new government ICT masterplan and cloud computing de

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TECHNOLOGY REPORT Q1 2012

INCLUDES 5-YEAR FORECASTS TO 2016

Part of BMI's Industry Report & Forecasts Series

Published by: Business Monitor International

Copy Deadline: January 2012

CONTENTS

Executive Summary 5

SWOT Analysis 8

Singapore IT Sector SWOT 8

Singapore Telecom’s SWOT 8

Singapore Political SWOT 9

Singapore Economic SWOT 10

Singapore Business Environment SWOT 11

Business Environment Ratings 12

Regional IT Business Environment Ratings 12

Asia IT Markets Overview 17

IT Penetration 17

IT Growth And Drivers 19

Sectors And Verticals 21

Singapore Market Overview 24

Background 24

Hardware 25

Software 28

Services 30

Industry Developments 34

Industry Forecast 36

2012 Outlook 36

Market Drivers 37

Segments 38

Services 38

Table: Singapore's IT Sector – Historical Data & Forecasts (US$mn Unless Otherwise Stated) 39

Industry Forecast Internet 40

Table: Internet – Historical Data & Forecasts, 2009-2016 40

Competitive Landscape 42

PC Market 42

Tablets 42

IT Services 43

Operating Systems 44

Macroeconomic Forecast 48

Table: Singapore – Economic Activity 50

Company Profiles 51

IBM Singapore 51

Hewlett-Packard Singapore 53

Chartered Semiconductors 55

Singapore Computer Systems 56

Country Snapshot: Singapore Demographic Data 57

Section 1: Population 57

Table: Demographic Indicators, 2005-2030 57

Table: Rural/Urban Breakdown, 2000-2030 58

Section 2: Education And Healthcare 58

Table: Education, 2000-2004 58

Table: Vital Statistics, 2005-2030 58

Section 3: Labour Market And Spending Power 59

Table: Employment Indicators, 2001-2006 59

Table: Consumer Expenditure, 2000-2012 (US$) 59

BMI Methodology 60

How We Generate Our Industry Forecasts 60

Transport Industry 60

Sources 61

Executive Summary

Market Overview

Singapore's IT market is projected to record 6% growth in 2012, with slower growth compared with 2011

BMI expects the total size of the domestic IT market to increase from US$6.4bn in 2012 to US$9.6bn in

2016, with drivers including a new government ICT masterplan and cloud computing deployments fuelled by Singapore's Next Generation Nationwide Broadband Network roll-out

In 2012, a slowing economy is expected to mean moderate growth in IT spending PC sales stagnated in annualised terms in H111 due to price-cutting While the sustainability of the global economic recovery is less certain over the next two years, cloud computing and government spending will help to sustain Singapore's IT market in the long term

With the Intelligent Nation 2015 (iN2015) plan placing IT at the heart of the government's strategy to improve competitiveness, complex government tenders will drive considerable spending in years to come

in areas such as education, e-government, transport and healthcare

Industry Developments

Healthcare IT is a major focus for IT vendors in the Singaporean market Singapore's Ministry of Health

is overseeing the creation of a National Health Electronic Register (NHER), which aims to have all healthcare institutions, public and private, linked to the same information system The NHER is a key component of the government's healthcare plan An initial launch for the new system was expected in April 2011, after the first phase of the project was launched in November 2010

In 2011, the Singaporean governmentcontinued to implement its eGovernment Masterplan, which has an emphasis on participation, through the utilisation of social networking tools and greater sharing of data The greater use of data analytics is likely to be one aspect of this programme The government is also designing a new ICT infrastructure for government, which uses cloud computing and energy efficient technologies

Company News

Cloud computing is on the rise in Singapore, boosted by the city-state's excellent telecoms infrastructure

In 2011, SingTel is expected to roll out a wider range of cloud computing products aimed at small and

medium-sized enterprises (SMEs), including solutions for human resources and logistics management The company has forecast a cloud services CAGR of around 70% over the next three years In May 2011

SingTel, in partnership with Canon, launched a cloud-based printing service

During H111 major players British Telecom Global Services (BTGS) and Tata Communications

launched cloud services in the city British Telecom's Next Generation Contact Centre (NGCC) is a portfolio of cloud-based services for call centres Meanwhile, Indian giant Tata Communications has made Singapore a regional hub for its cloud services, InstaCompute

Meanwhile, Microsoft was promoting the Office 365 module of its BPOS (Business Productivity Online

Suite) which was recently launched in Singapore Among early adopters of the online software in

Singapore was Kah Motor, the Singapore and Malaysia distributor for Honda cars Microsoft believes

that the cloud offering will not cannibalise its existing software business

a trend for households to own more than one unit Given the massive growth in broadband penetration expected in future, the increasing number of products and services available on the internet will be a major driver of demand for computer hardware

Software

Spending on software is projected at US$936mn in 2012, up from US$865mn in 2011 Software

accounted for about 14% of the domestic IT market in 2011 As the market focal point evolves from hardware to services and solutions, the share of IT spending accounted for by software should rise to nearly 17% by 2016, with enterprises seeking greater leverage from their investments

Over the forecast period, enterprise resource planning (ERP), customer relationship management (CRM) and other e-business applications will find increasing popularity with the SME market as companies look

to enhance productivity through the automation of essential functions Given the focus of many

businesses on controlling costs, the pay-on-demand software-as-a-service (SaaS) model has grown in popularity and spread beyond the initial core application area of CRM

IT Services

In 2012, the IT services sector is projected to be worth US$2.6bn IT services' CAGR is expected to be

efficiencies from cloud computing, with evidence that demand for cloud computing was not restricted to large organisations but has spread to the Singaporean SME sector

There should be opportunities in key IT spending verticals such as telecoms, government, healthcare and logistics Regulatory compliance will continue to require spending by banks and investment by foreign banks is spurring new technology investments by local players Expanding technology adoption in the logistics industry and public transport will be a source of IT services projects

E-Readiness

The National Broadband Network (NBN) is at the core of the government's iN2015 initiative The

contract for the first phase of the project, which will link businesses, schools, hospitals and homes, involves 45% of the network being rolled out within three years and the entire network by 2012 The IDA said that within two years, 60% of homes and offices should have access to the network

The second phase of the project will have an emphasis on pervasiveness and the provision of wireless access at affordable rates The project is expected to lead to 68% broadband penetration by 2012 The NBN will be capable of offering high speeds of 1Gbps or more and aims to provide affordable broadband for 95% of all homes and businesses by 2012

Key Issues For Investors

ƒ Further government-enforced reductions in labour costs and mandatory corporate contributions

SWOT Analysis

Singapore IT Sector SWOT

Strengths ƒ Strong government support for ICT programmes

ƒ Well positioned to benefit from links with China

ƒ An IT-literate population

ƒ A strong financial sector

Weaknesses ƒ Singapore has a small and mature domestic market with relatively slow growth rates

ƒ Sensitive to volatility in the global economy

Opportunities ƒ The iN2015 programme will have many direct and indirect benefits for the IT market

ƒ Major projects in areas such as healthcare and transport

ƒ 'Green' IT as companies look to make power savings

Threats ƒ The biggest threat is a prolonged slowdown in the US economy and/or China's

economic growth, affecting Singapore's economic activity

Singapore Telecom’s SWOT

Strengths ƒ Singapore has a mature mobile sector

ƒ Competition in the market, chiefly between SingTel, StarHub and M1

ƒ The launch of high-speed downlink packet access (HSDPA) services by the three major operators should drive take-up of 3G

Weaknesses ƒ Limited scope for growth in the 2G mobile subscriber base

ƒ Strong increases in prepaid subscriber numbers could be the downfall for blended average revenue per user (ARPU)

Opportunities ƒ Mobile data use is likely to increase significantly to 25% or more of ARPU

ƒ An increasing tendency for consumers to annually replace their handsets will benefit vendors

ƒ The impressive take-up of 3G gives good growth indications

Threats ƒ Impending mobile saturation makes Singapore a less attractive market for

multinational vendors that are more interested in the potential of China, India and Indonesia

ƒ An economic slowdown will further exaggerate operators' falling average revenue per user (ARPUs) as customers look to reduce costs

Singapore Political SWOT

Strengths ƒ Singapore enjoys a very stable political system, following the country's second change

of leadership in 40 years, which saw Lee Hsien Loong – son of the nation's founder Lee Kuan Yew – take over as prime minister in 2004

ƒ Official promises have been made to eradicate Singapore's reputation as an overprotective nanny-state, with efforts to enhance freedom of expression

Weaknesses ƒ Singapore is not a properly functioning democracy The ruling People's Action Party

has won all but six seats in parliament and the opposition is restricted from campaigning through tight control over political debate and frequent use of libel laws

ƒ The government has yet to improve the situation for the less well off in Singapore and there is a rising wage gap between the top earners and the lowest paid

Opportunities ƒ Lee is proving himself a capable leader, moving away from the shadow of his father

by repeatedly calling for more openness

ƒ Singapore is leading its regional neighbours in signing free trade agreements

Increased regional integration is likely to give the country more influence in Asia

Threats ƒ There are fears that Singapore's foreign policy alignment with the US will cause the

city-state to become a target for terror attacks launched by Muslim extremists

ƒ The last election showed that segments of the electorate are becoming disenchanted with the People's Action Party and its repression of opposition voices

Singapore Economic SWOT

Strengths ƒ Singapore's monetary policymakers have gained credibility by guiding the exchange

rate to offset inflationary pressures while ensuring stable growth

ƒ Singapore's current account surplus remains about 20% of GDP and its external finances are in good shape This is reflected by the world's credit rating agencies, which continue to award Singapore top marks for external strength

Weaknesses ƒ The trade-dependent economy remains exposed to global trends in demand for

electronic goods, which account for around half of Singapore's non-oil exports

ƒ Singapore faces a number of long-term economic problems Competition from cost neighbouring countries is on the increase and its population is ageing rapidly

low-Opportunities ƒ In the face of regional competition for both exports and investment, the government is

encouraging economic diversification to boost competitiveness New areas being promoted include biomedical sciences, medical services, financial services and tourism

ƒ There may be increased prospects for Singapore to expand its investments in the Iskandar Malaysia project (a government-directed economic corridor initiative) in Johor, following a cordial visit by Malaysian Prime Minister Najib Razak in May 2009

Threats ƒ There is significant state involvement in the private sector, with the government

refusing to disclose the assets of the Government of Singapore Investment Corp (GIC) The GIC is one of the world's largest institutional investors, managing foreign exchange reserves and government funds worth more than US$100bn Without increased openness, investor confidence could be damaged and domestic growth hindered

ƒ Singapore's exporters will need constantly to adapt to competition from low-wage economies such as China and India

Singapore Business Environment SWOT

Strengths ƒ Singapore ranks fifth place in Transparency International's 2011 Corruption

Perceptions Index

ƒ Strikes and labour protests will remain rare, if not absent, for the foreseeable future owing to the government's autocratic insistence on a business-friendly environment Policymakers will continue to use heavy-handed tactics to ensure unions stay pliant

Weaknesses ƒ Political and economic stability has come at a price The government censors the

media and limits the distribution of foreign publications The judiciary's record of siding with prominent politicians calls into question the true extent of its neutrality in any contract dispute involving a politically sensitive issue

Opportunities ƒ Owing to the lack of progress at the WTO, the government has committed the country

to sign 18 bilateral free trade agreements with 24 trading partners Singapore has already signed agreements with several countries, including the US, Japan, India and Australia

ƒ Singapore has one of the best business operating environments in Asia This is reflected by its second place in the Index of Economic Freedom league table compiled

by Heritage Foundation and the Wall Street Journal

Threats ƒ Singapore is potentially at risk of a terrorist attack The city-state has previously been

identified as a target by Islamist militants from neighbouring Indonesia and elsewhere Singapore's adjacency to the Malacca Straits means its trade is vulnerable to

international piracy

Business Environment Ratings

Regional IT Business Environment Ratings

Limits Of Potential Returns Risks To Realisation Of Returns

IT Market

Country Structure Limits

Market Risks

Country Risk Risks

IT BE Rating

Regional Ranking

weighting respectively and are based on a subjective evaluation of industry regulatory and IP regulations (Market) and the industry's broader Country Risk exposure (Country), which is based on BMI's proprietary Country Risk ratings The ratings structure is aligned across the 14 industries for which BMI provides Business Environment Ratings

methodology and is designed to enable clients to consider each rating individually or as a composite, depending on their exposure to the industry in each particular state For a list of the data/indicators used, please consult the

appendix at the back of the report Source: BMI

BMI's Asia IT Business Environment Ratings (BER) compare the potential of a selection of the region's

markets over our forecast period through to 2016 Our Q112 ratings reflect our consideration of political and economic risks, as well as risks associated specifically with IT intellectual property (IP) rights

protection and the implementation of state spending projects

Australia therefore retains its top regional rating in Q112 The market is expected to remain in positive growth territory, despite business concerns about the domestic carbon tax and the global economic situation One leading area of opportunity is growing demand for cloud computing services A wide range

banks, have launched cloud initiatives Meanwhile, the government has unveiled a six-year cloud

computing strategy

Australian IT verticals such as government, telecoms, healthcare and banking should continue to supply demand for implementation, consulting and managed services in future The government's commitment to continue to implement the National Broadband Network project will drive the development of Australia's digital economy and feed demand for PCs

The smaller, but mature IT markets of Singapore and Hong Kong take second and third positions

respectively in our ratings table, due primarily to their high Country Structure scores Hong Kong and Singapore are expected to emerge as cloud computing hubs due to growing interest in cloud computing across the region

We forecast solid IT market growth in these markets in 2012 However, this will depend on continued business and consumer confidence in the economic recovery, which could feel an impact if China

experiences a slowdown Key sectors of the Hong Kong economy such as financial services are investing

in modernisation as Hong Kong strives to maintain its regional hub status in the face of competition from rivals such as Shanghai Hong Kong also continues to offer IT investors opportunities associated with its growing links to the vast Chinese market

Meanwhile, Singapore's ambitions to emerge as a regional cloud computing hub will fuel vendor

investment in service capabilities Moreover, ambitious projects such as the national healthcare register and the schools standard operating environment will bolster the IT market Singapore benefits from high broadband penetration and initiatives such as the government's ambitious Intelligent Nation 2015 plan

Singaporean spending on IT services will be boosted by the continuing boom in IT-enabled services such

as call centres and back-office financial services Other promising sectors for IT services include

healthcare, as the government launches a series of initiatives to develop health technology

On the downside, the continued restructuring of both economies, towards a more service-oriented model, may limit long-term growth prospects However, this also brings opportunities in sectors such as financial services and banking Businesses will probably remain cautious and value focused over the short term

BMI forecasts that South Koreans will increasingly choose to spend money on IT products due to a

substantial increase in disposable incomes Consumers appear willing to upgrade their PCs, and there is also a trend for households to own more than one computer

Meanwhile, South Korea's government is encouraging the utilisation of cloud computing by small

businesses New cloud computing offerings and increased competition in this segment are expected to fuel growing demand for this technology IT outsourcing is also expected to show a strong demand trajectory

Malaysia remains in fifth position in our Q112 regional ratings Demand is expected to stay resilient, even

as economic growth moderates Government spending may become more constrained, because of

commitments to tackle the budget deficit, but there will be growth areas IT spending growth will be driven by the government's drive for greater broadband penetration It has set an optimistic target of 75%

by 2015

The roll-out of a Malaysian high-speed broadband network will boost IT spending outside the Klang Valley Other projected growth and PC market drivers include a rise in the PC penetration level from about 35%, tax exemptions for notebooks and growth in disposable incomes

There are increasingly attractive opportunities in the IT services area as the government implements measures to make Malaysia a growing regional services and outsourcing hub Cloud computing will also

be a growth area and the government has named cloud computing as one of its top 10 strategic technology priorities

In China, despite an expected moderation in investment and retail spending over the next year, an

expansion in consumer credit will help drive IT market growth The rural electronics subsidy programme will continue to boost demand from the vast, underpenetrated rural areas The lower tier cities and towns are expected to be the fastest growing segment of the PC market but pressure on hardware prices is also a risk in the current environment

Factors such as the vast potential rural market and a commitment to modernisation in sectors such as education, healthcare and manufacturing are among other expected drivers In the Chinese IT services segment, growing interest in cloud computing will be stimulated by the establishment of government pilot programmes in five cities However, there are still market risks associated with IP rights protection in China, as well as piracy and a lack of business transparency

Vietnamese IT demand, although with a rather smaller market than its leading neighbour to the north, is expected to have several long-term drivers Vietnam's improving ICT infrastructure will facilitate the development of the nation's IT market in a country with just 15% PC penetration PC subsidy

programmes will support the PC market in 2012 as the government continues to roll out the One One Computer programme

Teacher-Vietnamese government digital divide programmes to boost internet and digital utility in rural areas will help addressable market growth and open PC ownership to a growing number of rural inhabitants

Vietnam's gradual integration into global trade networks such as ASEAN and the WTO has helped reduce tariff barriers and prices, and has increased opportunities

In the Philippines, the IT market will be driven by the local IT and business process outsourcing (BPO) sector The BPO industry, which accounts for around 30% of IT spending, continues to grow The

Philippines has a lower PC penetration than many other Asian countries and the IT market offers

corresponding high growth potential over the forecast period

However, the Philippines faces challenges such as labour shortages and rising wages In the enterprise segment, surveys suggest that many businesses including small and medium-sized enterprises (SMEs) plan to increase IT spending

India's IT market appears set to continue a strong recovery in 2012 thanks to a growing economy and healthy consumer sentiment The potential is clear, with less than 2% of the population owning a

computer, which is about 20% of the level in China It is estimated that around 400,000 Indian SMEs implement an IT solution annually Significant opportunities will be created by demand from Indian businesses and government agencies to help utilise cloud computing

There are expected to be strong growth opportunities in the next 200-400 smaller cities in India, where vendors are expanding their retail and distribution presence Realisation of India's growth potential depends on fundamental drivers such as increasing India's low computer penetration, rising incomes, falling computer prices and the government's ambitions to connect the country's vast rural areas to the rest

of the world

The last three markets in our regional ratings have low scores due primarily to business environment factors, despite considerable growth potential In Thailand, the fundamentals of growing affordability and low PC penetration should keep the market in positive territory during the forecast period The PC market received a severe impact from the recent floods, and this is expected to continue into H112, with forecasts for Q112 PC sales downwardly revised by around 10% in Q112 A number of factors should also support momentum, including the government's PC for Education programme and 3G mobile and WiMAX

broadband service rollouts BMI's view is that the fundamentals of growing affordability and low PC

penetration will keep the market on a positive growth trajectory

Similarly, with PC penetration at only around 6%, and development restricted to richer areas such as Java,

the Indonesian IT market has much growth potential BMI expects the Indonesian market to be one of the

fastest growing in the region over the five-year forecast period Government infrastructure investments should also provide a boost to Business IT investment, which will likely remain buoyant in line with the

general economy as inflation moderates Spending in key IT verticals, such as financial services and banking should continue to be significant The SME sector will drive demand for basic hardware and applications as enterprises focus on enhanced productivity

Sri Lanka's IT market has benefited from the restoration of peace and improvements in the security situation, which helped release pent-up demand for IT solutions The country has felt the effects of instability over the years, from disruption of distribution channels and a flourishing grey market to the underdeveloped telecoms infrastructure However, Sri Lanka will feature on IT vendors' radars as one of the best potential growth prospects in South Asia Computerisation has only started in government services and major public and private sector organisations remain largely underpenetrated in terms of basic enterprise software

Asia IT Markets Overview

IT Penetration

Across Asia, government ICT initiatives and

growing affordability will help to drive

increases in PC penetration during BMI's

five-year forecast period While some cities and

regions stand out, there is an unbalanced

pattern of regional development, with PC

penetration in countries such as Singapore

above 50%, while in other countries, such as

Indonesia, it is below 5%

The two Asian leaders, China and India,

embody the region's growth potential, as in

both countries computer ownership remains the

preserve of a minority In China, PC penetration was only around 25% in 2010 – although it was far higher in cities such as Shanghai and Beijing and urban PC penetration is projected to pass 60% by 2015

In India, less than 5% of people own a computer However, some 45% of the population is under 25, which provides a promising demographic context for increased PC ownership PC penetration in Vietnam

was estimated by BMI at around 15% in 2010 Notebooks are owned by an estimated 7% of the

Vietnamese population, which points to

significant growth potential for the local PC

market

Lower prices will help to drive higher PC

penetration in developing markets The average

price of a PC in the Indian market has nearly

halved over the past few years, and rising

incomes and greater credit availability will

continue to bring computers within the reach of

lower-income demographics Even in more

mature markets, there is room for development,

however, with official data suggesting that as

many as 25% of Hong Kong households do not

have a computer at home

Around the region, affordable computer programmes continue to find favour with governments In China,

a subsidised household electronics products initiative aimed at rural residents has helped to boost PC sales

in areas where penetration was low In Australia in 2010, national and state governments continued to roll out new initiatives, with the Victoria government investing more than US$150mn in IT in schools

In Indonesia, PC penetration of around 2% could double by 2013 if government initiatives are followed through The Indonesian government is also rolling out new e-learning initiatives, with a target of raising the current 1:3,200 ratio of PCs to students in public schools to 1:20 Meanwhile, in 2010, the Vietnamese government launched a programme entitled One Teacher-One Computer, which offered discounts on PCs for teachers and students

A similarly broad range is found with respect to internet penetration The highest levels of internet penetration are found in Singapore, South Korea, Hong Kong and Australia, with estimated 2011

penetration rates of 78.5%, 76.4% and 75.5% and 67.4% respectively Singapore has by far the highest rate of broadband penetration, which was estimated at 160.2% in 2011 Meanwhile, the Philippines has the one of lowest levels of internet usage, with just 7.1% narrowband and 6.1% broadband penetration estimated in 2011

The fastest growth is expected in Indonesia, where internet penetration is projected to leap from 36% in

2011 to 67.4% by 2015 India is now at above 28% internet penetration despite a lack of fixed-line infrastructure, and this should reach 36% by 2015 Steady growth is also projected for Sri Lanka, where penetration is projected to increase from 14.1% to 19.4% by 2015 Some 60.4% of Malaysians had internet access in 2010

Dial-up technology is still the dominant access method in many states However, even in developing markets, the number of broadband subscribers continues to gain ground steadily Broadband penetration has been boosted by growing numbers of mobile broadband users, as 3G mobile services are expanded across the region In China, broadband penetration is on course to reach 33.1% by 2015 In India,

penetration should increase sixfold to reach 9.4% by 2015 from around 1.5% currently, although this remains below government targets Singapore will also see continued strong growth in broadband

penetration, which is projected to reach 186% by 2015

Across the region, government programmes are an important driver of ICT penetration The Chinese government has a five-year plan to make the internet available in every administrative village in central and eastern China and every township in the west In Australia, the government's commitment to develop the National Broadband Network should further the development of Australia's digital economy

Meanwhile, the growth of Wi-Fi coverage will be one driver of notebook sales in places such as Hong Kong, where the government has committed another HKD200mn to the deployment of a Wi-Fi network covering more than 200 public venues

IT Growth And Drivers

Across the region in 2011, IT spending should

benefit from improved economic circumstances

and tenders, previously deferred as a result of

the economic situation, although much will

depend on business confidence Strong

fundamental demand drivers of IT spending

mean that there will be continued

opportunities Key factors common to most

markets include cheaper PCs and reform in

sectors such as telecommunications and

finance, as well as government initiatives

In some of the region's largest markets, such as

China, lower-tier cities and towns will be among the fastest growing segment of the IT market BMI

expects China's IT market growth to be driven by an expansion into western China and rural areas well as growing demand from small and medium-sized enterprises (SMEs) The Chinese IT market will also receive a boost in 2011 from a 50% increase in import tariffs on some electronics products, such as laptops

In Thailand in 2011, demand will be bolstered

by market expansion in the relatively

underpenetrated rural areas SIS forecasts that

market growth in upcountry areas will be 30%

in 2011, double that forecast for the country as

a whole A similar situation pertains to India

where in 2011 there are expected to be strong

growth opportunities in smaller cities

The long-term potential of India's IT market is

plain: less than 3% of people in India own a

computer (about one-fifth of the level in

China), meaning particular potential in the

lower-end product range India's IT market appears to be positioned for strong growth thanks to an

2011e IT Market Sizes

improving economy and consumer sentiment, and government support for modernisation in lagging sectors Meanwhile, India's business process outsourcing industry is growing at around 40% per annum and will continue to generate opportunities for

vendors of IT products and services

The Philippines is one of the countries

currently benefiting from low-priced PC

programmes (PC4ALL), which provide

opportunities for vendors to penetrate the

low-income segments Other regional computer sale

drivers over the forecast period include

education, lower prices, IP telephony, cheaper

processors as well as notebook entertainment

and wireless networking features Meanwhile,

in Indonesia, the basic demographics of rising

computer penetration and growing affordability

should drive growth SMEs represent a growth

opportunity, as currently only around 20% of Indonesian SMEs are estimated to make use of IT

Compliance with government and international regulations will be a driver in financial, manufacturing and other sectors

In more developed markets, such as Hong Kong and Singapore, robust retail sales led the way in early

2010 as spending recorded positive growth following a contraction in 2009 In Hong Kong consumer

spending is expected to remain strong in 2010, as evidenced by the positive early reception for Apple's

iPad IT market growth will be driven by government IT spending as well as cross-border trade and cooperation

The largest IT market in the region is, unsurprisingly, China, estimated at US$105.4bn in 2011, trailed distantly by Australia (US$20.8bn), India (US$19.7bn) and South Korea (US$17.8bn.) Singapore's IT market (including communications) is the largest as a proportion of national GDP (2.2%), followed by Hong Kong (2.1%) Thailand's IT market was affected last year by a number of exogenous events

including floods in the north east of the country, and political unrest However, in 2011 the country looks

to be back on track

The fastest growing IT markets over the forecast period are projected to be India and Indonesia with 2011-2015 compound growth of 109% and 91% respectively, driven by increasing PC penetration Sri

Lanka is third with the IT market growing by an estimated 89% over BMI's five-year forecast period,

while China's total growth is estimated at a still healthy 70%

IT Markets Compound Growth

2011e-2015f (%)

e/f = estimate/forecast Source: BMI

Sectors And Verticals

Regional IT markets remain hardware-centric, with hardware accounting for 25-74% of total spending in all markets in 2010 However, spending on software and services will grow faster Notebook sales are growing much faster than the PC market as a whole with growth driven by falling prices and more

features

In mature markets such as Australia and Singapore, PC sales are dominated by replacement sales In Australia, upgrades are estimated to account for at least 80% of business purchases and more than 50% in the case of households More than 90% of Australian households now have a PC, but consumers have appeared willing to spend on upgrading their notebook computers and it is also becoming more popular to purchase a second household PC Indeed, around 30% of households have more than one PC

Tablet sales will lead to a new PC market growth area, with triple-digit growth projected in many

markets In China it is estimated that tablets could account for around 6-7% of computer sales in 2011 However, partly thanks to the tablets surge, demand for netbooks has lost momentum in some markets Sales, although initially promising, have sometimes fallen short of perhaps unrealistic expectations In Australia, netbooks sales growth slowed from the first quarter of 2010, and this has continued into 2011

In less developed markets, demand from under-penetrated rural areas, affordable computer programmes and growing broadband penetration should generally drive growth In China, as in much of emerging Asia, demand from smaller towns and rural areas where PC penetration is relatively low will provide the main source of growth Another driver will be replacement of desktops with notebooks SMEs will be one

of the strong growth segments over the forecast period, with SME demand for servers and networking equipment a significant growth opportunity

Falling prices is another major driver, placing pressure on margins As of the third quarter of 2010, the average price of a PC in China was estimated to have fallen to around US$600, considerably below the price level in developed markets In India, the average price of a PC has nearly halved over the past few years, and rising incomes and greater credit availability will continue to bring computers within the reach

of lower income demographics

In both emerging and more mature markets, the growing popularity of broadband will help to support

computer sales China Telecom is among regional telecoms companies to have rolled out PC bundling

offers as part of its broadband packages Meanwhile, broadband plans will also help to popularise tablets

At the end of 2010, Australian telecoms operators such as Telstra were competing to offer affordable

tablets bundled with data services

Meanwhile, a wave of 3G launches across the region should also provide a stimulus to sales of notebooks,

with Vodafone Hong Kong among service providers offering 3G/HSPA USB modems bundled with

their 3G services However, netbooks and notebooks face competition from other form factors such as

smartphones from Palm, RIM, Apple and other vendors, and tablet notebooks, spearheaded by Apple's

iPad,

Due in part to high levels of piracy, software's share of IT spending is relatively low, ranging from 9-25%

among countries covered by BMI Efforts are being made to tackle the issue of piracy, but despite

government crackdowns in China and the Philippines, software piracy remains above 70% in most of emerging Asia

In 2011, sales of Microsoft's Windows 7 operating system and new Intel core technology retain the

potential to help trigger hardware upgrades, although much will depend on business confidence

Hundreds of large enterprises and thousands of small enterprises in China have already started migrating

to Windows 7, and this process is expected to continue in 2011

Across the region there is a growing trend for smaller companies to seek greater efficiency by using IT to improve productivity and reduce costs (including labour costs) As Asian companies have become more integrated into the global supply chain, their multinational business partners often encourage them to install backoffice systems to meet efficiency requirements

In general, enterprise resource planning (ERP) and other e-business products still dominate the enterprise software market, but vendors are also looking to other areas such as customer relationship management (CRM) and business intelligence, where faster growth is possible Although the market remains relatively small, more companies are looking at computing solutions such as Software-as-a-Service (SaaS) Cloud computing business models such as SaaS offer smaller businesses a cost-effective way to deliver

applications such as payroll, tax-return processing and recruitment

The hosted application model may already account for between one-fifth and one-quarter of Chinese software revenue and SaaS has also enjoyed steady growth in the Hong Kong market over the past few years Improved broadband infrastructure will assist the popularisation of the rented software model in markets such as Indonesia Meanwhile, around one-third of Australian organisations already use some cloud computing

New platforms and services in the telecoms field is a driver for that key IT spending segment, where an industry restructuring with the advent of 3G mobile services has led to more competition Meanwhile, expanding technology adoption in the logistics industry and public transport will be a source of IT

The IT services segment accounts for 17-40% of spending in the Asian markets covered by BMI The

global economic slowdown and credit tightening had an impact on projects in some verticals, but in 2010,

a brightening business climate should mean more opportunities in key IT-spending verticals such as Financial Services, Telecoms, Government, Healthcare and Logistics

Government spending will account for a larger share of spending in many markets In China, government stimulus packages have helped to drive IT-related investments, while in Singapore government ICT projects such as SOE2 provide significant opportunities Meanwhile, the Hong Kong government's Digital 21 initiative will continue to generate spending

Regionally, hardware deployment services remain the largest IT services category, with other

fundamental services including system integration, support systems, training, professional services, outsourcing and internet services Main spenders across the region include banks and financial institutions

as well as governments Even in emerging markets such as India, IT vendors are having to pay more attention to value-added services such as technical support and product troubleshooting, or basic IT and hardware consulting

In many countries, the number and size of local outsourcing deals are increasing Outsourcing could account for as much as 30% of China's IT services spending by 2013, while in India there have been some

large contracts such as that awarded by Idea Cellular to IBM Singapore and Hong Kong have both seen

a trend towards larger outsourcing projects in the public and private sectors

Market Structure (% Of Total IT Market)

e/f = estimate/forecast Source: BMI

Singapore Market Overview

Government Authority

Government Authority Infocomm Development Authority (IDA)

The IDA, the government's ICT authority, operates under the Ministry of Information, Communications and the Arts The IDA's main responsibilities include fostering a competitive world-class ICT industry in Singapore, preparing residents for living and working in the 'new economy', spearheading the delivery of citizen-centric e-government services as well as building and operating the government's IT

infrastructure Yong Ying-I, previously the permanent secretary of the Ministry of Health, is chair of the board of directors

In 2005, the IDA established a high-level steering committee to lead the development of Singapore's iN2015 initiative The committee supervises a number of sub-committees charged with identifying areas

of opportunity where new value can be introduced through IT use, enhancing productivity and

competitiveness Target sectors for the plan include education and learning, financial services, healthcare and biomedical sciences, logistics and high-tech manufacturing, digital media and entertainment, and tourism and hospitality

iN2015 ICT Masterplan

The IDA's 10-year masterplan has the objective of establishing an 'intelligent nation' powered by ICT by

2015 Since the launch of the iN2015 in June 2006, a number of programmes and initiatives have been rolled out by the government and industry

The government will spend at least SGD2bn over 2007-2012 to upgrade its IT systems under the plan The IDA also unveiled a detailed roadmap in 2007 for its iGOV 2010 programme to raise the service and efficiency levels of civil servants with the latest technology Major spenders have included the IDA, along with the Ministry of Defence and the Defence Science and Technology Agency (DSTA)

Background

As Singapore is a mature economy with a small domestic ICT market, the prosperity of its IT sector is closely linked to exports Singapore's IT sector benefits from close ties to regional economies, especially India and China To secure its IT hub status, the Singaporean government, through the IDA, has been proactive in cultivating the island state's technology strengths

The state has been a major provider of opportunities for IT vendors over the past few years, with a string

of government-led projects translating into some large equipment orders

The government announced S$1.1bn in new infocomm tenders in 2010 This did not include the

substantial sums already committed to major ongoing projects such as the next generation NBN and SOE projects In 2009, government procurements came to about SGD1.12bn, with 392 new projects put out to tender

Singapore's status as a regional IT hub has been enhanced in recent years by direct investments from a

number of IT companies Lenovo selected Singapore as the location for its regional headquarters for

Association of South East Asian Nations (ASEAN) countries and China, as well as a global hub for sales

support, treasury and supply chain functions EMC opened a South Asia Development Lab in the Changi Business Park, and Dell announced plans to split its world headquarters between the city-state and its base

in Austin, Texas The move made Singapore Dell's global support hub for manufacturing and distribution

A series of developments also underlined Singapore's regional role as a centre for the semiconductor and components industry With rising consumer wealth in China, India and Indonesia supporting demand for

chips, Singapore has an important role as a value-added location Marvell, one of the world's top 10 cable

semiconductor companies, announced that it was building a new regional headquarters in Singapore

NXP Semiconductors, one of Asia's top five chipmakers, also announced new plans to shift more of its

high-end facilities and corporate functions to Singapore

Showcasing Singapore's growing attraction as a services centre, a number of vendors have increased their

presence in the market BT Group completed an acquisition of Singapore-based IT services provider Frontline Technologies for around US$73mn The company launched operations using the brand name

BT Frontline Lenovo brought all its customer service operations together in one global service

organisation based in Singapore Such developments are an important driver of local IT market growth

Singapore will continue to be one of the most comfortable places in Asia in which to do business Its financial system is sound, its banking standards are high, the rule of law is strong and corruption is notable only by its absence Singapore is second only to Hong Kong in the world in terms of economic freedom, according to Washington-based thinktank the Heritage Foundation Nevertheless, the

government retains a strong presence in the economy through its powerful government-linked companies These will continue to impinge on the business environment

Hardware

Singaporean spending on IT hardware is projected at US$2.8bn in 2012 with mid-single-digit growth continuing from 2011 In Q111, vendors reported stagnant growth compared with the same period of

2010, although sales were up on the previous quarter One factor behind the flatlining was inventory clearing, with retailers cutting prices to clear stock There were also base effects, compared with strong growth in the H110

BMI expected the market to pick-up later in 2011 as vendors released new models The surge in

popularity of tablets, led by Apple's iPad, has likely had an impact on sales of other PC form factors, but

BMI predicts that in the high-tier Singapore market this will moderate with the growth of the

ultra-portable notebook category Another factor acting as a drag on growth in H111 was delays in the schools standard operating environment project, but education procurements are likely to provide a boost later in

2011

In 2010, a strong PC market performance was reported by vendors, as there was a boost from PC

procurements previously deferred because of the economic situation The addressable PC market

was estimated to grow 11% to 1.3mn units Robust consumer spending was reinforced by a revival in business IT hardware spending This started in Q110, when PC sales were up by around 20%, with a surge prior to the end of many companies' financial years in March Growth continued in Q210, with strong double-digit year-on-year growth in desktop sales There was also double-digit growth in demand for servers and storage hardware

Growth in 2012 is expected to be more moderate, but there should be continued stimulus from

enterprise upgrades and an improving economy Migrations to Microsoft's Windows 7 operating system

have the potential to help extend a cycle of hardware upgrades, although much will depend on the global economic situation IT upgrades which were previously delayed due to the economic situations are expected to be released, as companies look to replace ageing stocks of computers

In the consumer segment, a healthy economy should keep consumers spending on new products such as tablets and ultra-light notebooks, driven by growing demand for mobility and seamless connectivity In

2010, product innovation such as dual-boot mini-notebooks and more powerful netbooks helped sustain sales HD and graphics-related features are also helping to maintain consumer sales momentum, which has often surpassed expectations in the Singaporean market

Netbooks and notebooks face competition from other form factors In particular, smartphones from Palm, Research in Motion (RIM), Apple are being offered by vendors as alternative connectivity solutions and

often include a Wi-Fi option 2011 also saw strong demand for tablet notebooks, spearheaded by Apple's

iPad, which retails for around US$728 in Singapore Operators such as SingTel look on tablets as an

opportunity to boost data usage and revenue

of 2010, was available for SGD998, and was jointly launched by Samsung and SingTel Tablets are being designed to appeal to consumers who find a smartphone inconvenient for watching videos or surfing the web, but a netbook is still too big or heavy Tablets are expected to be significantly more expensive than smartphones but, despite a previous mixed record with this form factor, are seen as a growth area

Another area that vendors will watch is the e-reader market

The computer hardware segment was a bright spot in the Singaporean IT market during the economic slowdown, as it managed positive volume growth despite problems arising from the economic recession

In 2009, PC sales were up by around 8% on 2008 levels, and 5% in value, boosted by strong sales at four major IT fairs However, growth in 2009 was driven mainly by sales of lower priced notebooks and netbooks, as consumers remained cautious about discretionary spending, which added to pressure on prices and margins

According to IDA figures, 74% of Singaporean households have a PC Overall PC penetration is also thought to have passed 70%, following PC demand growth of close to 20% in 2001-2005 However, consumers have appeared willing to spend on upgrading their notebook computers, and it is also

becoming more popular to purchase a second household PC Notebooks now account for around 75% of Singapore market shipments, although due to corporate refreshes, there is expected to be stronger demand for desktops in 2011

Singapore's drive to become a regional data hub should ensure strong demand for servers as financial institutions, government agencies and other organisations look to replace older servers The refresh drive

is expected to extend from x86 servers to Unix and mainframe platforms Government IT spending has become a major market driver, and this continued with some major projects in education and other areas through 2010

IT hardware spending accounted for around 45% of the domestic IT market in 2010 There are a number

of positive factors that should help to keep computer hardware demand in positive growth territory First, government programmes related to the iN2015 masterplan provide a bottom for the market In 2009-

2010, the government's SOE tender provided a boost to the PC market 'Computers for education' is also a significant market component, with cheap computers provided for university students

Second, the government's ambitious broadband plans will also drive expansion The iN2015 and

broadband network plans, in addition to its Connected Homes and IT literacy programmes,

should develop services such as online banking and shopping Converged multimedia services such as internet protocol television (IPTV) will also feed demand for PCs and notebooks with entertainment features

Overall hardware CAGR is forecast at 11% over 2012-2016 A further area of potential growth is the SME sector, with growth in spending by SMEs predicted across each of the next few years As elsewhere

in the region, strong demand for notebooks and falling prices have been an ongoing driver in recent quarters The price of PCs has fallen rapidly since 2001, while notebooks have been a major market driver across Asia

Software

Spending on software is projected at US$936mn in 2012, up from US$865mn in 2011 Software

accounted for about 14% of the domestic IT market in 2011 As the market's focal point changes from hardware to services and solutions, the share of IT spending accounted for by software should rise to nearly 17% by 2016, with enterprises seeking greater leverage from their investments

Cloud computing should provide a boost to software's share of the IT spending pie There should also be

a boost from systems upgrades, previously delayed as a result of the economic situation, with research indicating that around one-third of Singapore companies planned to increase spending on software in

2011 Software is expected to be one of the faster-growing segments of Singaporean IT spending

Migrations to Windows 7 still have the potential to boost market revenue, with Singaporean retailers reporting strong sales of the new operating system However, vendors report that clients often use system upgrades to explore opportunities for server consolidation and virtualisation solutions During the

economic slowdown in 2008-2009, some companies deferred planned spending in some application areas, such as enterprise application management, and hold off on middleware systems upgrades Other

companies, however, saw IT as a way of bringing greater efficiencies and increasing competitiveness in a difficult time

Compliance with government and international regulations will be a driver in financial, manufacturing and other sectors, as will the continued expansion of Singapore's e-government systems and e-commerce Given the focus of many businesses on controlling costs, cloud computing models have grown in

popularity, with about a third of Singaporean companies estimated to be planning cloud-related spending

in 2011

Approximately one-third of Singaporean enterprise IT budgets are allocated to software licence renewals,

according to a survey by research firm Gartner The most popular application area in 2011 looked set to

remain office and productivity software, as companies looked to boost efficiency in the wake of the

economic downturn However more than half the companies surveyed by Gartner planned to purchase customer relationship management (CRM) applications

Over the forecast period, enterprise resource planning (ERP), CRM and other e-business applications will find increasing popularity with the SME market as enterprises look to enhance productivity through the automation of essential functions Automation and growing information flow should prompt support and initiate an upturn in spending on middleware As evidence of the importance of the SME segment to vendors, Microsoft was offering SMEs six different options to migrate to its previous Windows Vista operating system, along with a variety of financial packages SMEs in Singapore are also among regional early adopters of open source business software

With growing maturity of the ERP market, vendors are now looking to areas such as business

intelligence, where faster growth is possible Singaporean companies are demanding business analytics solutions that provide them with a real time view of operational data for decision purposes The market for business intelligence and data mining solutions is also expected to be boosted by government

investments The government has made utilisation of data analytics technology a priority within its eGovernment masterplan and has been consulting with vendors on the best way to achieve this Defence and homeland security were among departments where advanced applications were being pursued

Security is another growth area and according to an IDA survey, 80% of those surveyed in 2006 had virus software, while 60% had installed anti-spyware and firewall applications The cost efficiencies of virtualisation (running multiple systems on a single piece of hardware) make sense in the current

anti-economic climate, but create new security issues Security software is a significant segment, but one that

is relatively difficult for new market entrants to penetrate Most government contracts are around five years, while in the corporate sector two to three years is common

While the overall spending on cloud computing is currently in low single-digits as a share of IT budgets, this share is likely to grow The economic crisis may have provided a lasting boost to the SaaS model, particularly as broadband penetration grows Demand has spread beyond the initial core application area

of CRM and the scale of application deployments has also grown Thousands of Singtel customers use its cloud services and the IDA launched an innovation exchange (SiX) to encourage applications

development A lot of growth is expected to be in the relatively under-penetrated SMB segment, which accounts for close to 90% of all Singapore enterprises

The perceived opportunities have attracted global service providers to channel investments into data centres in Singapore A 2010 survey conducted by HP found that 43% of IT decision makers at Singapore firms had been encouraged to consider cloud computing solutions by the current economic climate According to the survey, 60% of respondents said that cost saving was the main benefit they sought from cloud computing However research also indicates continuing that Singaporean companies have

continuing reservations about the security of cloud computing solutions In a 2011 survey by Springboard Research, about 33% of Singaporean companies surveyed cited security, data privacy and loss of control

as their main concerns

The rollout of Singapore's NBN has provided benefits to the city-state's SMEs, with fibre coverage expected to reach 60% by the end of 2011 The expansion in coverage should drive SME demand for cloud computing services SMEs usually have a limited budget for IT and cloud computing allows them

to avoid many of the upfront costs associated with building an IT infrastructure

SingTel, M1 and Starhub all have plans to offer a wider range of cloud computing services to the SME

market More vendors and service providers, including new entrants, are looking for looking for channel partners to help them offer hosted software services to local organisations In addition to cost savings, businesses will look to boost efficiency and increase the flexibility of their responses to customer needs Large businesses are most likely to put IT applications such as mail, phone systems and document

management into the cloud However, enterprise applications that require a high level of customisation, or those that are subject to regulatory or data sensitivity constraints, are more likely to stay on premise

However, Singapore's software piracy level is still above the EU average and remains a problem In 2008, the Singapore software piracy rate dropped by just 1% to 36%, according to industry lobbying group the Business Software Alliance (BSA) The BSA previously estimated that a 10% reduction in Singapore's then piracy rate of 42% would boost the size of the IT sector by nearly US$1bn in four years

The rise of internet software downloads has slowed progress on this issue, with small firms a problem area This could help spur interest among smaller firms in open source software, as they are the main market for open-source software in Singapore currently, particularly at infrastructure level However, other sectors such as government have also begun to consider open source There is also interest in open source for applications such as supply chain management and business analytics

Regulatory compliance will continue to require spending by banks, while foreign investment is spurring new technology initiatives by local players Insurance companies are expected to increase their spending

on systems upgrades and legacy migrations along with investment in business analytics solutions

Competition in the telecoms field is a driver for that key IT spending segment, where deregulation has led

to new entrants Expanding technology adoption in the logistics industry and public transport will also be